Business Organization: Forms of Business Ownership презентация

After successful broadcasts
Among CIFS students

Comes of one the most
Expected lecture of season

Business Organization:
Forms of Business Ownership
Lecture 4

Selecting a Form of Business Ownership
Sole Proprietorship
Partnership
General Partnership
Limited Partnership
Limited Liability Company
Corporation
Private Limited Company
Public Limited Company
Joint Venture
Franchise
Form of Business
Ownership Decisions
Access to Funding
Control of Business
Taxes Paid
by Business
Value of Firm

Concepts of Business Ownership
Unlimited Liability – no limit on the debts for which the owner is liable/responsible
Limited Liability – responsibility only for the amount of money invested into business
Legal Personality – legal identity separate from its owner

Concepts of Business Ownership
Continuity – death of an owner does not stop the business from running
Going Public – the act of initially issuing stock to the public

Sole Proprietorship
Owned by a single owner
The owner – sole proprietor, sole trader
Full control by the owner
Limited access to funds
The business is likely to remain very small
The owner has unlimited liability
Only Personal Income of the owner is taxed

Sole Proprietorship
Advantages vs. Disadvantages
“+”
Easy to set up
Complete control
Owner keeps all profit
Low taxes
“-”
Owner incurs all losses
Unlimited liability
Hard to raise funds
Limited skills
No continuity

Partnership
General Partnership
Co-owned by two or more people
Extra skills / specialization areas
Partners have unlimited liabilities
More funds:
Additional capital injected by each partner
Easier access to funds through creditors
Shared decision making
Shared profit and losses

Partnership
Limited Partnership
Limited partner(s) + at least one general partner
Limited partner
Liability is limited to the cash or property they contributed to the partnership
Does not take part in decision making
General partner
Manages the business
Receives a salary
Shares the profits or losses of business
Has unlimited liability

Partnership
Advantages vs. Disadvantages
“+”
Additional capital
Shared decision making
More specialization areas
Losses are shared
“-”
Unlimited liability*
Profits are shared
Shared control
No continuity
*With some exceptions and in certain cases

Limited Liability Company (LLC.)
Similar to partnership
Has all the advantages of partnership
All partners have limited liability
Precise rules on liability protection vary from one region/state to another
Added complexity, compared to partnership
Have become popular in recent years

LLC “UNITEL” works under Beeline TM

Corporation
A state-chartered entity that pays taxes and is legally distinct from its owners
Corporate Charter – a document used to incorporate a business (describing important aspects of corp.: name, stocks issued, operations, etc.
Corporate Bylaws – general guidelines for managing the firm

Corporation
Limited liability for owners
Separate legal identity
This leads to double taxation (how?)
Shareholders elect Board of Directors
Board of Directors establish general policies, elect/replace Officers (CEO, CFO), etc.
Shareholders receive dividends

Corporation
Privately Held vs. Publicly Held
Privately Held Corporation (Ltd., Pte.) – restricted to a small group of investors (original owner, friends, relatives, employees, etc.)
Shares cannot be sold on the open market
Control often remains in hands of the original owner(s)
Publicly Held Corporation (Plc., Inc.) – shares can be easily purchased or sold by investors
Issue stock to public (go public)
Simplicity and flexibility in buying/selling stock
Higher degree of “divorce between ownership and control”
Agency problems and short-termism

Corporation
Advantages vs. Disadvantages
“+”
Limited liability
Access to funds
Easy to transfer ownership (sell shares)
Separate legal personality
Continuity
“-”
Legal formalities in business formation
Fluctuating share prices
Financial disclosure to public / inspection
Risk of takeover
Agency problems

Joint Venture
Two businesses working together on one project
Producing in one country and selling in another
Producing different parts (automobile industry)
Not a merger, but can lead to one
Costs and risks are shared
Different strengths and experiences
Access to different markets whenever this is the case
Culture and management styles may be different
Potential conflicts over the errors
Failure of one business will put the joint venture at risk

Franchise
An arrangement whereby a business owner allows others to use its trademark, trade name, or copyright, under specific conditions
E.g. McDonald’s, Body Shop, Pizza Hut, etc.
Styles of management and production provided by franchisor
Already recognized name
Some financial support
Profit is shared with franchisor
Less control

Summary
Sole Proprietorship
Partnership
General Partnership
Limited Partnership
Limited Liability Company
Corporation
Privately Limited Corporation
Publicly Limited Corporation
Joint Venture
Franchise
Which one is best?

Obtaining Funds for Your Business